What's Happening?
Workers' compensation insurance premium rates in California have been declining for several years due to reforms that reduced claim payouts and changes in experience modification rating calculations. However,
the California insurance commissioner recently approved an 8.7% increase in pure premium rates, marking the first rise in a decade. This advisory rate increase comes as the industry reports a combined ratio of 127% for 2024, indicating that for every dollar in premium charged, $1.20 is being spent. This unsustainable situation suggests that further rate increases are likely. Factors contributing to these proposed increases include a rise in claim frequency, particularly cumulative trauma claims in Southern California, and escalating medical costs. Employers are advised to anticipate renewal quotes ranging from flat to a 10% increase.
Why It's Important?
The increase in workers' compensation rates in California has significant implications for employers and the insurance industry. Employers may face higher costs, impacting their financial planning and potentially leading to increased prices for goods and services. The rise in claim frequency and medical costs highlights the need for effective risk management strategies to control expenses. For the insurance industry, the rate increase could stabilize financial losses, but it also underscores the challenges of managing rising claim costs. Stakeholders, including employers and insurers, must navigate these changes to maintain profitability and compliance with regulatory requirements.
What's Next?
Employers are encouraged to implement strategies to manage claim frequency and severity, such as investing in ergonomics programs and maintaining strong communication with employees to prevent litigation. The insurance industry may see further adjustments in premium rates as companies respond to the financial pressures of rising claim costs. Employers should work closely with brokers to negotiate favorable rates and understand the implications of different insurance policies. The potential for a hard market in workers' compensation insurance looms, and proactive risk management will be crucial for employers to secure the best rates.
